Japan Fiscal Plan Calls for Continued Cooperation With BOJ

Markets Await Central Bank Stimulus Decisions
  • Finance chief urges BOJ to keep doing its utmost on inflation
  • Cabinet seen approving size of the package in Aug. 2 meeting

The Abe administration highlighted continuing cooperation with the Bank of Japan in an outline of a fiscal-stimulus package that has yet to have a price tag decided.

Finance Minister Taro Aso, speaking to reporters in Tokyo, said he hoped that the BOJ would continue its utmost efforts to achieve its 2 percent inflation target, while leaving actual monetary-policy measures in the hands of the central bank. He said that the government has yet to decide on the size of its fiscal program.

Most private economists anticipate that Japan will implement a double dose of stimulus, with an acceleration in monetary expansion by Governor Haruhiko Kuroda and his colleagues on July 29, and the much-discussed government package that could be enacted by parliament in October. 

Meetings on the so-called supplementary budget are expected Friday, with the cabinet making the final decision on the size on August 2. The government on Tuesday submitted a list of projects to the ruling Liberal Democratic Party.

The Nikkei newspaper reported on Tuesday that the plan would include 6 trillion yen ($57 billion) of new spending, although only about 2 trillion yen of that would be in a supplementary budget to be passed this year. The government was discussing supplementary spending of about 3 trillion yen ($28.5 billion) for the current fiscal year, two officials familiar with the talks said last week. Including loans and loan guarantees, the headline figure for the fiscal stimulus has been speculated at 20 trillion yen.

True Spending

“I don’t think the headline is very important, because there’s a lot of smoke and mirrors in what they put in the headline,” said Robert Feldman, chief economist at Morgan Stanley MUFG Securities Co. in Tokyo. “I would actually encourage investors to focus on the so-called real demand component,” which requires going “item by item by item and calculate what’s going to be spent, when it’s going to be spent.”

Looking at the political calendar, it’s likely for the package to win approval in the parliament some time in October, with money starting to flow from late 2016, into 2017, Feldman said.

In the days after Prime Minister Shinzo Abe’s ruling coalition won a big victory in the upper-house election on July 10, he ordered that a stimulus package be compiled as he seeks to revive economic growth. He specified spending on regional infrastructure, such as bringing forward the construction of maglev and other high-speed train lines, and improving facilities at ports for tourist cruise ships.

Financing Question

Chief Cabinet Secretary Yoshihide Suga in a recent interview ruled out issuing deficit bonds to fund a stimulus package, instead hinting at using construction bonds for longer-term investments.

Partly because of speculation about stimulus plans, Japan’s Topix index has risen 8 percent since the upper-house election. During the campaign Abe pledged to work toward raising Japan’s gross domestic product to 600 trillion yen from 500 trillion yen, and a well-constructed initiative could provide a boost for economic growth.

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